Novatek boosts earnings in Q3 on oil-indexed pricing

Russia's Novatek reported a surge in earnings in the third quarter like many oil and gas producers, the LNG exporter reported on October 27, but analysts note this was likely because of higher oil prices, which its gas supply contracts are linked to, rather than the spike in global gas prices.

Normalised Ebitda came in at 181.8bn rubles ($2.6bn) for the three-month period, almost doubling from 93.9bn rubles a year earlier. Revenues surged to 276.7bn rubles from 163.8bn, while profit attributable to shareholders climbed to 112.9bn from 13.2bn rubles.

The company's production averaged 149,500 barrels of oil equivalent/day in the third quarter, slightly down from 150,400 boe/d a year earlier.

Moscow-based brokerage BCS Global Markets said the company's numbers modestly outperformed its expectations, noting that average sales price for its gas was up 64% year on year in US dollar terms.

"This rise was likely driven far more by the rise in oil prices than by the rocketing spot prices of gas in Europe and Asia, as most of Novatek's LNG sales from Yamal LNG are linked to oil prices rather than gas hubs," it said.

Another brokerage, Sova Capital, added that "the market was likely expecting a bigger impact from the sharp increase in natural gas prices globally."

There was good news for Novatek's upcoming Arctic LNG-2 project earlier this week, with the project's consortium securing an increase in the size of a credit facility from a group of Russian groups from €3.11bn to €5.7bn. Novatek is seeking $11bn of external financing for the terminal, due online in 2023 and set to produce nearly 20mn metric tons/year of LNG at full capacity. This equates to around half of its total cost.